Richard Hess was interested in making a donation through International Needs to a special project in the Czech Republic. But he hesitated when he learned that only 80% of his donation would go to the field. The other 20% would be used for administrative costs.
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Like Hess, donors are sometimes drawn to a ministry because of a specific project the nonprofit is engaged with. But donors might be surprised to learn that not all of it goes to support the project or field workers—part of their gift goes to overhead costs.
‘Reasonable’ portion
According to attorney David Bea, who has years of experience in nonprofit law, ministries may use a “reasonable” portion of the donation for overhead expenses and the like.
When asked what would constitute a reasonable portion, Bea told MinistryWatch, “The percentage that is ‘reasonable’ can vary depending on the nature of the project or how long the charity has been in operation. New startups may spend more on administration initially. Fifteen percent is generally considered reasonable. Twenty percent may be as well, depending on the circumstances.”
A ministry doesn’t have to disclose upfront the portion of the donation it will use for administrative costs, but Bea says donors should feel comfortable asking the ministry for specifics.
The Evangelical Council for Financial Accountability also acknowledges this in its Giver Bill of Rights, which says donors have the right to “have an accurate understanding of what a gift to the organization will accomplish” and “to receive timely and courteous responses to inquiries about finances and programs.”
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Bea also said a ministry generally has the ability to use the donation for a similar purpose if the special project is funded above the need.
International Needs
Often ministries will publish an annual report that shows how much of their revenue goes to fund administrative costs.
For example, International Needs lists in its annual report that 14% of its annual expenses go to administrative costs and fundraising.
Its president, Jeff Johnson, explained that another 5% is used in collaboration with partners in the field to help support their programs, monitor progress, and measure and evaluate impact.
He said the amount used for administration and program expenses usually comes up during conversations with donors and is also communicated in reports about the impact of International Needs’ work.
“I am happy to have this conversation and explain the use of funds,” Johnson told MinistryWatch. “We are 100% about transparency with donors.”
In the MinistryWatch database, International Needs has an A transparency grade and receives a high donor confidence score of 92 out of 100—a “Give With Confidence” designation. Johnson also reported that their donor loyalty is strong with the average donor giving over a 12-year period.
Johnson also noted he believes the proper use of funds for administration and fundraising will result in ministry growth. “Since 2018, we have seen consistent and steady growth year by year in the amount of funds we are able to directly send to the field. We track this closely as for us this is the best metric around the stewardship of administration and fundraising,” Johnson said.
“Our intent for admin and fundraising is to operate the ministry effectively and to help us grow the ministry where it is intended globally,” he continued. “That is what we see happening at [International Needs.]”
To illustrate the use of the programmatic funding of 5%, Johnson gave an example about the teams they support in the Czech Republic, who are engaged in wellness programs in the public schools. When several students approached the team about hosting an after school program to learn more about the Christian faith, International Needs strategized with them, acquired bibles, and developed curriculum to use in the after school program.
If a donor wanted to restrict his donation so that 100% went to field work, Johnson said he would have a very direct conversation with the donor to explain how the programmatic expenses allow the gift to have a greater impact.
For consistency’s sake, Johnson said, it would be very difficult to accept such a restricted gift.
Restricted donations
According to Charitable Allies, in order to qualify as a charitable deduction, a contribution must “be complete” and “irrevocable.”
“The charity must have full control of the donated funds, and discretion as to their use to carry out the organization’s charitable functions and purposes,” an article about restricted gifts explained.
Charitable Allies explains that certain restrictions are acceptable, such as advising how the funds are used, directing that they be used for an overseas project, or directing that it be used for a specific program.
Unacceptable restrictions include requiring that the gift be used for a specific individual or exercising considerable control over the gift.
According to Charity Lawyer, “if the donor allocates funds for program B and states verbally or in writing that such funds cannot be used for administrative costs…to support such programming, then they cannot be used for that purpose.”
“However, if no such explicit statement is made by the donor, non-profits can use a reasonable amount of the restricted funds for overhead such as administrative costs allocable to the program designated by the donor,” it added.
MinistryWatch rates the Christian groups in its database according to their financial efficiency. Part of that rating is based on resource allocation. “The Resource Allocation efficiency rating uses ratios that relate to the way an organization spends its money. The more money an organization spends on its ministry efforts, and the less money it spends on administrative and other non-program costs, the higher its rating in this category.
Hess told MinistryWatch that he made the gift, but increased it so that the amount he wanted to go to the Czech Republic would reach it. He said he may look for a more direct route to make a gift in the future.
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